Owning Your Car: What's the True Cost You Should Budget for in a Year?

By Sara


Last Updated: August 23, 2023


Owning your own car feels like freedom. You can go anywhere you want at any time.

However, your car may be keeping you from reaching your financial goals.

Owning a car may only seem like an upfront cost and monthly payments, but the true cost of owning a car goes far beyond that.

In fact, AAA's 2022 “Your Driving Cost” study shows that the "overall average cost to own and operate a new car in 2022 is $10,728," which doesn't include any monthly payments you may have for a car loan. 

This article will look at the true cost of owning a car, from:

  • monthly payments
  • loan interest
  • depreciation
  • fuel
  • insurance
  • maintenance and fees

These expenses are often overlooked and need to be factored into your monthly car budget. 



6 Overlooked Expenses When Owning a Car

1. Purchase price 

The most immediate cost of a car is buying the car.

This is often the only time the cost of owning a car comes up and is accounted for. Many people rely on car loans with a small down payment to pay for their car. This means that there will be a monthly payment to make to a bank, and that is the only dollar amount assigned to a car in someone's budget. 

Many factors go into the purchase price and loan of a car.

In 2023, the average loan amount for a new car was $40,851, with an interest rate of 6.58% and a monthly payment of $725.

This amount changes for a used car. In 2023, the average loan amount for a used car is $26,420, with an interest rate of 11.17% and a monthly payment of $516. 

Your monthly payments will be anywhere from $500 to $700 for a car, depending on your income, budget, and credit score. In a year, just the monthly loan payments cost $6,000 to $8,400. 

AAA's Your Driving Costs report doesn't even include monthly payments.

If the average cost to own and operate a car is just over $10,000, and you have a monthly car payment of $600, your total yearly cost is just over $17,000. 


2. Gas

Gas is one of the most variable costs when owning a car.

Calculating your exact yearly spending can be hard, as gas prices can change at any time of the day. AAA found that the average cost of gas was $3.99/gallon, coming out to just under 18 cents per mile. 

Depending on how much you drive, you can spend anywhere from $1,800 to $4,500 on gas in a year. 

If you drive an electric car, you may not have gas to worry about, but you do have to charge your car. AAA estimates that it costs around 14 cents per kilowatt hour. 


3. Insurance 

If you own a car, you need to have car insurance.

This is to protect you in case you cause or are involved in a car accident or other type of damage to your vehicle. Every state requires you to have some car insurance. 

The average annual premium for full-coverage insurance is around $1,588. Insurance premiums can range depending on a few factors: 

  • Age
  • Driving Experience 
  • Driving History
  • Location 


4. Maintenance and repairs

A car is a mechanical machine.

Mechanical machines need regular maintenance and repairs to ensure they work properly. AAA has estimated that maintenance and repairs cost 9.68 cents per mile driven. Depending on how much you drive, the yearly cost of maintenance and repairs can range from $958 to $1,916. 

This includes: 

  • Retail parts and labor for routine maintenance 
  • Comprehensive extended warranty 
  • Repairs to wear-and-tear items during five years of operations 
  • One set of replacement tires 


5. Registration, fees, and taxes 

You will have to pay a registration fee whenever you buy a new car.

Depending on the state you live in, there could also be other fees for license and registration. In addition, there are local and state property taxes for owning a car. This amount can change depending on the car's age and where you live.

On average, registration, fees, and taxes can cost about $675 a year. 


6. Depreciation 

AAA accounts for depreciation in their annual cost of owning a car.

While you don't pay anything in depreciation, it's important to understand that if you want to sell your car, your car's value will depreciate. AAA estimates a car depreciated $3,656 a year on a brand new car after five years and 75,000 miles. 



Calculate your total cost of car ownership 

If you want to calculate how much car ownership will cost you, there are two ways to do this through AAA's "Your Driving Cost" study, which has been publishing this study since 1950. 

The first way to calculate this is first to determine how many miles per year you drive.

Depending on your total miles, there will be a different average cost per mile. 


Miles Per Year




Average Cost/Mile

76 ¢

72 ¢

70 ¢

Total Cost per Year





If you have a monthly car payment, you can include the yearly cost in addition to this estimated total cost per year for car ownership. 

If you would like a better estimate, AAA has a calculator to help give you a better-estimated cost.

This calculator will allow you to put in factors that can impact your cost, like the state you live in and your car's specific make and model.

These two factors can greatly impact your yearly cost of car ownership. This tool is also great to use to estimate your yearly cost if you are purchasing a new or new to you (used) car. 



Final Thoughts

Owning your car can be a great thing.

It allows you to go to work and explore the world. However, owning a car can be costly, with a yearly cost of around $10,000.

You'll have to pay for these, on top of a monthly loan payment.

  • gas
  • insurance
  • registration and taxes
  • maintenance
  • and repairs

These costs can cost thousands of dollars a year and over time. Over time, certain costs will decrease, like taxes, while others may increase, like repairs.

Before you buy a car, look into the total yearly cost of owning a car to ensure you can afford everything that goes into this purchase!

Photo by Vincent Ghilione on Unsplash


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